Let The Morons Eat Cake
Submitted by QTR's Fringe Finance
When I first got involved with investigative forensic equity research about 15 years ago, I remember being genuinely stunned by what I was finding. I was drawn into the world of skeptical inquiry after reading GeoInvesting’s exposé of Longwei Petroleum back in 2012 where they concluded the U.S. listed company, trading on a major exchange with exposure to U.S. retiree money, was nothing more than a “brazen fraud” by simply going to their factory and watching the activity (or lack of) there.
The SEC stepped in and eventually charged the company with fraud, alleging it was “built on fraudulent statements” and alleging its CFO was using company funds to buy his company’s stock to prove to investors that he believed in the company.
From that point on, looking at companies from the perspective of someone trying to fact check their claims instead of taking them at face value made market research a stunning experience.
It arrives like a deluge for anyone willing to simply crack open a 10-K and do another layer of research on a company’s claims: questionable accounting, misleading disclosures, related-party transactions, and, in some cases, what I believed was outright fraud hiding in plain sight. It was everywhere. In the case of U.S. listed China based companies, there was even a movie made highlighting the billions being siphoned from U.S. investors, out in the open.
What shocked me back then, and still does now, is how little anybody seemed to care. And in some cases, how it feels to me that reporters and media who are supposed to be digging for truth feel complicit in many of these schemes.
I had so many questions back then. Where were the auditors? The exchanges? And where were the sell-side analysts whose actual jobs were supposed to involve scrutinizing these companies? You know, the guys that don’t write a 6AM blog piece every day in their pajamas like I do. The guys who put on a suit and go on national television to talk about their equity research, DCF models and price targets.
Where were their warnings?
Every day, millions of ordinary investors buy and sell shares in businesses they know almost nothing about, relying on the assumption that somebody, somewhere, has done the necessary homework. They assume that because a company is publicly traded, has an auditor, and is covered by major Wall Street institutions, there must be some reasonable assurance that the whole thing isn’t a flaming bag of dogshit.
And of course, history tells us otherwise. Eventually, there’s an Enron. Or a Wirecard. Or a Theranos, which managed to fool an extraordinary number of sophisticated investors without ever becoming publicly traded. The illusion collapses, billions of dollars disappear, and the same people who spent years applauding the emperor’s beautiful new clothes suddenly want...(READ THIS FULL ARTICLE 100% FREE HERE).